AAR Eyes International Acquisition

AAR, fresh from a sizable win for its airline supply chain business, is eyeing an international acquisition that would further boost the segment, CEO David Storch says.

Speaking to analysts during a Dec. 19 earnings call, Storch confirmed that Wood Dale, Ill.-based AAR is “looking at a fairly sizable deal that would expand our presence” outside the U.S. The deal would likely be an all-cash transaction, he adds, offering few additional details.

AAR, already one of the industry’s largest heavy maintenance providers, has been ramping up its supply chain efforts beyond supporting its own facilities, as well as eyeing expansion beyond the U.S. Two years ago, it acquired London-based component repair management specialist Airinmar, broadening supply chain capabilities by beefing up its internal repair offerings.

“We’re looking at other things that, in a similar fashion, make the supply chain solution a more compelling and integrated solution,” Storch says. “Hopefully, we’ll have something to talk about here in the near future.”

A deal would grow an already expanding supply chain offering that AAR is using to help keep its commercial aftermarket arm growing. Earlier this year, the company inked a deal with Rockwell Collins that has the avionics provider repairing components as part of long-term support deals AAR has with airline customers.

The efforts are paying off. Earlier this month, AAR announced a five-year deal to supply consumables and expendables to an unnamed U.S. major that is already a customer. The contract, valued at about $40 million per year, sees AAR supplant 150 current suppliers, aggregating some 25,000 line items and ensuring they are kept in stock at the carrier.

The agreement covers “everything from the sourcing of the parts to delivering it to the bins at the airline,” Storch says, noting that it is very similar to what AAR currently does for its own heavy maintenance facilities. “We’re leveraging our systems, we’re leveraging our relationships and we’re leveraging our core capabilities.”

AAR posted fiscal 2014 second-quarter sales of $540.7 million and net profits of $20 million, up 5% and 12.3%, respectively, from prior-year figures. Commercial customers generated 57% of the revenue, compared to 60% in the same quarter last year. Quarterly non-commerical revenues benefited in part from delivery of two Boeing 737-400s sourced and modified for the U.S. Marshals Service.

The Aviation Services segment—comprised of supply chain, aircraft maintenance, and airlift—saw sales rise 9%, to $424.7 million. The supply chain work picked up in the quarter following a three-month stretch hit by customer-driven maintenance deferrals, particularly on engine overhaul work that AAR supports.

Airframe maintenance demand “remains strong,” with “a high level of capacity utilization,” Storch says. AAR delivered 176 aircraft and logged 1.3 million labor-hours in the quarter. In the last 12 months, it has returned 855 aircraft to service and racked up 5.1 million labor-hours, Storch says.